Oil Price Uncertainty

Date: 11/27/2008

Speaker(s):

Dr. Apostolos Serletis, Economics & Finance, University of Calgary

Location:

Calgary Place Tower (Shell)

Topic:

Recent empirical research on the relationship between oil prices and real economic activity has emphasized the importance of sustained increases in oil prices, abstracting from transitory fluctuations associated with increased volatility. Economic theory, however, suggests that volatility in oil prices may adversely affect economic activity, as increased uncertainty depresses investment and consumption.

In this talk, I will present the stylized facts of oil price movements over the last 25 years and address the relationship between oil prices and real economic activity, focusing on the role of uncertainty about the price of oil. Using recent, state-of-the-art advances in macroeconometrics and financial econometrics, I will argue that oil price uncertainty has had a negative and significant effect on economic activity. I will also argue that accounting for the effects of oil price uncertainty tends to exacerbate the negative dynamic response of real economic activity to an unfavorable oil price shock, while dampening the positive dynamic response to a favorable oil price shock.

The Pacific Institute for the Mathematical Sciences is grateful for the support of Shell Canada Limited, Alberta Advanced Education and Technology, and the University of Calgary for their support of this series of lectures.